Will Saudi Arabia’s big bet on Lucid group (LCID) work? In an aim to launch an entire EV industry in the country, Saudi Arabia’s Public Investment Fund (PIF) has infused approximately USD 7bn and is a major stakeholder (59.3% ownership) in Lucid (developer and manufacturer of EVs, EV powertrains and battery systems).
Lucid’s cash burn has been worsening each year increasing to USD 3.5bn in FY23 (FY22: 3.1bn; FY21: USD 1.4bn and FY20: USD 1bn), with cost of goods as high as 2.5x of revenue and spend on R&D and SG&A as high as 2.8x of revenue. We think Lucid’s cash burn could potentially continue (even with a significant rise in vehicle deliveries) as the company continues to spend capex on manufacturing facilities to increase production and as the competition intensifies in the EV market with existing and new automotive players launching newer EVs.
The company’s EVs such as Pure, Touring and Grand Touring have all seen price reduction in recent quarters with prices down 10% to 20%, given the competition in the industry (Tesla also reducing price to maintain the market share). Will Lucid’s increased driving range in its newer version of existing cars and the upcoming luxury SUV model, Gravity, along with Earth, a midsized SUV, to be launched in future, save the day? With EV sales expected to reach 36% of total US retail market in 2030, from an approximate 9% in FY24, we see extreme competition (and opportunity) in this category in the next few years, as we expect all 30 automakers to launch newer feature-rich EV models with higher ranges, flooding the market.
Given the recent boost in liquidity of USD 1.5bn (by Ayar, an affiliate of PIF), primarily for the construction of the advanced manufacturing plant facility in Saudi Arabia, the company’s liquidity has improved to approximately USD 5.8bn, with management anticipating runway till 4Q25.
How long would the cash burn continue, how much more infusion of cash will be needed, and given the cash burn and intensifying competition, could the company survive without Saudi Arabia’s backing? Are Chinese EV makers, producing highly efficient, affordable EVs at competitive pricing that are gaining global market share a threat? We try to answer all these questions in our detailed credit research on the company along with our valuation here: https://lnkd.in/dHsutyBF
Stay tuned to see how Lucid navigates the financial landscape and the coming competition in the EV industry!
#Lucid #EV #ElectricVehicles #EVcompetition #cashburn
Senior advisor, university lecturer & speaker with central, commercial and investment banking experience (former board member Deutsche Bundesbank, European Vice Chairman Bank of America, Partner Rothschild, MD JP Morgan)
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